German banks could face substantial losses from a looming haircut on their loans to a bank in neighbouring Austria, but the losses will be manageable, rating agency Fitch said on Thursday.
"German banks have larger exposures than Austrian banks to Heta Asset Resolution AG," Fitch said in a note to investors.
"Losses are likely to be material for German banks but should be manageable," the rating agency said.
Heta was set up as the so-called "bad bank" of the troubled Austrian group Hypo Alde Adria (HGAA).
HGAA, the local public bank in Carinthia, ran into trouble after embarking on a breakneck expansion into the Balkans as well as Italy and Germany via acquisitions and risky investments.
Austria nationalised the bank and split it up, with the bad debts ring-fenced in Heta Asset Resolution.
However, at the beginning of this month, Austria`s financial regulator decided to impose a 15-month moratorium on Heta`s debts, freezing debt repayments until 2016.
Fitch, which said it expected Austria to impose a 50-percent haircut on the debt, calculated that German banks hold around 40 percent of Heta`s liabilities that are affected by the moratorium.
The business daily Handelsblatt reported Thursday that German banks` exposure to Heta is more than 5.0 billion euros.
The list of German creditors includes Pimco, a unit of insurer Allianz, the regional bank NRW Bank and the state-owned bad bank FMS.
Handelsblatt described Heta as a time bomb for the German financial sector.
